Nigeria@56: Financial experts point way forward for capital market growth

As Nigeria marks it’s 56th independence anniversary, some financial experts have advised the Federal Government to pursue economic policies that will boost liquidity in the financial system.

They told the News Agency of Nigeria (NAN) in Lagos on Sunday that the right economic policies would bring about the much needed liquidity and restore investor confidence in the capital market.

Dr Uche Uwaleke, the Head of Banking and Finance Department, Nasarawa State University, Keffi, said that the Nigerian stock market,  established in 1960, was still fraught with a number of challenges like lack of depth and breadth.

Uwaleke said that faithful implementation of the 2016 budget together with monetary and fiscal stimulus packages were necessary to boost market liquidity in the near term.

“The CBN monetary policy tightening which reduces liquidity and pushes up interest rates is another negative influence on the stock market,” he said.

Uwaleke said that government, challenged by revenue shortfall, should borrow from concessional sources such as the World Bank and China Exim Bank instead of attempting to sell stakes in state-owned companies.

He said that the borrowed funds should be committed to employment generating activities such as agriculture and infrastructure.

“It is also important that the Niger Delta militants are invited to a roundtable with a view to halting disruptions in oil production as resorting to force will be counter-productive.”

Uwalekr advised that the Central Bank of Nigeria (CBN) should complement these efforts by scaling up its development finance functions targeting agriculture and SMEs in particular.

“Funds earmarked for this purpose should be channeled to beneficiaries at single digit interest rates through the development banks like Bank of Industry and Bank of Agriculture, instead of commercial banks.

“By so doing, jobs will be created, the economy will rebound with positive effects on the nation’s stock market,” Uwaleke said.

He said that performance of the stock market over the years underscored the fact it was not delinked from the macro economy.

“It has witnessed booms and burst cycles in response to oil price volatility.

“Given the country’s mono product economy, the market has been bullish for most of the time following rising oil prices and bearish when oil prices decline.

“The worst period in recent history was during the global financial crises when the stock market lost over 60 per cent of its value in 2008/2009,” he said.

Prof Sheriffadeen Tella of the Department of Economics, Olabisi Onabanjo University, Ago-Iwoye, said that the market had not really grown over the years in terms of modus operandi.

Tella said the market had moved from analogue to digitised operations, but was still shallow in terms of the number and calibre of firms that were listed on it.

“Most firms on the stock exchange are local rather than international. So, there is the need to reform the exchange to attract or encourage listing by foreign or international businesses to increase its depth,” Tella said.

Mr Sola Oni, the Chief Executive Officer, SOFUNIX Investment and Communications, said that the major challenge militating against the capital market was lack of liquidity leading to underutilisation relative to its capacity.

“It is now compelling more than ever for the Federal Government to demonstrate the political will to work very closely with the capital market regulators and operators on ways to encourage multinational companies to be quoted on the exchange to deepen the market.

Government can grant them tax holiday of about three years and ensure patronage of their products and services by all government agencies,” Oni said.

He said that government should not force companies to be listed, but lure companies through mutually beneficial methods, particularly companies in the telecommunications and upstream sectors of the oil industry.

He said that the time had come for the government to accelerate the development of the economy through the inherent potential in the capital market.

Mr Ambrose Omordion, the Chief Operating Officer, InvestData Consulting Ltd., expressed dissatisfaction with low patronage of retail investors in the market estimated at less than four per cent.

Omordion said that government should make investment education compulsory in secondary and primary schools to enhance investment In the capital market.

He also called for the right operating business environment to encourage growth of businesses in the country.

Omordion advised that government should encourage PENCOM, Sovereign Trust Fund and other agencies to invest in the market.

NAN reports that the Nigeria Stock Exchange lost N1.025 trillion in market capitalisation in the last one year due to unfriendly regulatory policies.

Consequently, the market capitalisation, which stood at N10.728 trillion on Sept.30, 2015, lost N1.025 trillion or 9.55 per cent by the close of trading on Sept. 30, 2016 to stand at N9.703 trillion.

Also, the All-Share Index dipped by 2,970.21 points or 9.51 per cent by the close of trading on Sept. 30, 2016 at 28,247.56 against 31,217.77 posted in September 2015.